Bolton Bolting Commodities

Anthony Bolton, the UK's most famous money manager with an excellent long term track record, made news over the past day or so with this:

Bolton said: 'After five years of strong commodity markets, a contrarian such as myself would start to get worried. I would switch out of commodities today and move into financial stocks.' He warned that some financial stocks looked 'opaque' individually but that if the recycled commodities money was spread across the financials sector, investors 'should do well'.

My humble two cents -- and just putting my comments near those of Bolton is very humbling if not foolish -- is to underline the word SPREAD in his advice on buying financials. Especially if you're considering any of the banks. There's still a lot of toxic financial waste on the balance sheets of some (many?) of these institutions, so caution seems prudent.

Comments

[Stilgar]

Jim Rogers says the shortest bull market in commodities lasted 15 years. That gives us at least 6 more years.

[Sivaram Velauthapillai]

Stilgar, I'm bearish on commoditied and been wrong(!) over the year, but the fact that the shortest commodity cycle was 15 years doens't really mean much. The sample size is so small (you probably have 4 bull makret periods in the last 150 years) that it may not mean much. For instance, what's to say a new minimum of 11 years isn't in the cards?

Furthermore, individual commodities move independently so some may still have upside whereas others may fizzle. For example, I'm not so sure that soft commodities (agriculturals) don't have more upside (Rogers and Marc Faber seem most bullish on these right now); but it wouldn't surprise me if oil or the metals such as copper and uranium may be near a top.

Having said this, this is just a guess and who knows what is in store? All I know is that the Fed Funds Futures market is pricing in rate hikes later in the year, and that is generally very bearish for commodities (and generally bullish for US$). But they may not raise rates later if the economy ends up weaker than thought.

[madharry]

I dont know what is magical about 5 years. Fact is we continue to have emerging economies and lots of need for infrastructure replacement in developed countries. On top of that we have expansion of money supply everywhere coupled with increased development costs not to mention the time factor for example of bringing new mines into production. The mines that I follow are all experienced costs of production well in excess of what was predicted a year ago. All the above would argue for an upward bias to metals. one of the production costs of mining is power and thats not getting any cheaper nor is water getting more abundant.